Fitch Affirms Ecobank Transnational Incorporated; Outlook Stable

Fitch Ratings has affirmed Togo-based Ecobank Transnational Incorporated's (ETI / the holding company of the pan-African Ecobank group), Long-term Issuer Default Rating (IDR) at 'B-' with a Stable Outlook, Short-term IDR at 'B', Viability Rating (VR) at 'b-', Support Rating at '5' and Support Rating Floor at 'No Floor'.

KEY RATING DRIVERS: IDRs and VR

The affirmation of ETI's IDRs with a Stable Outlook and VR reflect the banking group's (i.e. the consolidation of ETI and its subsidiaries) improving financial performance due to its growing footprint across Africa. The ratings continue to reflect ETI's weak capital position, despite recently raised equity and its high
risk profile reflecting a wide network across several low rated sovereigns.

ETI's IDRs are based on its standalone risk profile and are therefore aligned with its VR.

ETI raised USD350m of new equity in 2012 leading to an improving Fitch Core Capital ratio (end-H113: 12.2%). Nonetheless, Fitch believes capital to be weak given its high double leverage (end-H113: 124%), modest capitalisation at some subsidiaries and high sensitivity to sovereign risk. ETI's high double leverage
is the result of past acquisitions and is unlikely to improve until 2014 if/when Nedbank exercises its option on a USD285m convertible loan and acquires additional shares to take a 20% stake in the holding company.

ETI has a solid franchise and is one of the largest pan-African banking groups with fully fledged banking subsidiaries in 32 countries in Africa.
These countries are either not rated or rated between 'B' and 'BB-' highlighting the risks in lending to emerging industries and sectors. ETI's largest subsidiary is Ecobank Nigeria (c. 40% of group assets) which means that the group's prospects are to a large extent linked to that of the performance of its Nigerian
operations, which are evolving.

Other rating drivers include weak operating efficiency, high operational risks and high related-party lending compared to Fitch Core Capital. The ratings are underpinned by the group's improving performance and tolerable asset quality in the context of the region (non-performing loan ratio of 5.7% at end-H113) and
healthy balance sheet liquidity due to a growing customer deposit base, mainly in Nigeria.

RATING SENSITIVITIES: IDRs and VR

Increasing double leverage, weaker capitalisation at group level due to aggressive expansion and/or material deterioration of asset quality could lead to a downgrade in ETI's ratings. Furthermore, destabilised liquidity could also trigger a downgrade.  In the event that recent allegations of weak corporate governance are proven and materially alter the risk profile of the group, this could lead to a review of the ratings.

There is limited upside to the ratings at present. One trigger could be a significant improvement in Ecobank Nigeria's financial metrics and risk profile, in line with top tier banks in Nigeria.

KEY RATING DRIVERS AND RATING SENSITIVITIES: Support Rating and Support Rating
Floor

Fitch believes that ETI's largest shareholders (AMCON, the International Financial Corporation and Public Investment Company of South Africa) are long term but financial investors only and their ownership in ETI is not strategic for the businesses of the respective shareholders. Therefore we believe that institutional support cannot be relied upon.

Fitch believes that ETI's main operating subsidiary, Ecobank Nigeria, may benefit from potential limited support from Nigeria ('BB-'/Stable) if required given its increased systemic importance after the acquisition of Oceanic Bank PLC. However, Fitch estimates that potential sovereign support from Nigeria is unlikely to extend to ETI, if required.

The Support Rating and Support Rating Floor could be revised upwards if there was any change in assumptions around the increased propensity or ability of  Nigeria or of other countries in which ETI operates to provide support. However, this scenario is unlikely. An upgrade of the Support Rating could also result from ETI becoming a strategic investment for some of the shareholders or other higher rated issuers, combined with majority ownership in ETI and/or close integration of ETI's operations with those of the potential strategic shareholder(s).